ECN Capital Corp T.ECN

TD Report

[retiredcf]

ECN Capital Corp.

(ECN-T) C$3.22

Q1/23 Preview Event

Recommendation: BUY

Risk: HIGH

12-Month Target Price: C$5.50

12-Month Dividend (Est.): C$0.04

12-Month Total Return: 72.0%

Market Data (C$)

ECN reports Q1/23 results on May 15. We forecast Q1/23E adjusted EPS from continuing operations of $0.02. Consensus stands at $0.025.

Impact: NEUTRAL

We forecast pre-tax adjusted operating income from MH of $17mm, up 35% y/y, reflecting 15% y/y growth in originations. Last quarter, origination growth slowed to 8% y/y (lower than our estimate) as seasonality that had been absent throughout the COVID-19 period (as a result of significant industry backlogs) returned to the business. Shipment backlogs have largely normalized over the past few quarters, reintroducing seasonality to the business.

We forecast originations of $330mm in Q1/23 with Q2 and Q3 being the seasonally stronger quarters. Margins also tend to be impacted by seasonality. Last quarter, Triad reached an agreement with an existing institutional partner to flow and manage up to $300mm in floorplan assets, diversifying its funding to large institutional credit investors (from deposit-taking institutions) at the expense of slightly lower origination fee margins. Accordingly, we forecast margins coming in 4bps lower than last year but up 10bps from last quarter. Triad’s leading position in affordable housing is particularly well-situated as rising housing costs shift demand away from traditional housing options to Triad’s financing options.

RV&M (Source One and IFG) is estimated to contribute $2.6mm to adjusted operating income (pre-tax), up 21% y/y. We forecast $150mm in originations this quarter, up 35% y/y. Management guided to $1.25bln- $1.35bln of originations in 2023E. RV&M is much like MH in that they originate prime loans for RV & Marine products (average ticket size $40k) and the loans are all non-recourse.

TD Investment Conclusion

The company is undergoing a review of a full range of strategic alternatives in response to interest received in order to maximize shareholder value. This includes continuing its tuck-in acquisition strategy to a potential takeout offer. While a takeout may provide meaningful value for shareholders, there is significant uncertainty as to the nature, timing, and value of the operating segments, as well as the evolving macro backdrop. Our target price implies upside of 72%. We continue to rate the stock BUY.

[bmbruce]

ECN was downgraded by analysts at TD Securities from a "buy" rating to a "hold" rating. They now have a C$4.00 price target on the stock, down previously from C$5.50. This represents a 47.6% upside from the current price of C$2.71.